“A very general demand”

The Panic of 1907 dealt Americans a severe shock. Although centered in Manhattan, it precipitated a nationwide currency shortage due to correspondent banks’ inability to draw upon their New York reserves. Out in Oklahoma, Comanche leader Quanah Parker observed, “money is pretty hard everywhere.” The banks in two-thirds of all cities with populations over twenty-five thousand suspended cash payments to some extent. In major cities across the nation, clearinghouse certificates were substituted for currency. Bank holidays were declared in California, Nevada, Oklahoma, Oregon, and Washington State. One Chicago depositor found the chaotic financial situation so alarming that he imagined imminent upheaval: “Unless the banks shall resume currency payments . . . so as to restore some feeling of confidence . . . there are apt to be . . . scenes of riot and bloodshed in this city.” The financial situation had stabilized by the close of the year, but the resultant economic dislocation persisted. By the end of 1907, there were only 154 blast furnaces in operation as compared to the 329 that had been producing steel in October. As 1908 dawned, industry was running at a much diminished capacity. Numerous sectors were operating at only 28 percent of the volume that they had one year earlier. There were five million unemployed workers that summer with little hope of securing a job.^{Footnote 5}

The economic uncertainty and reduced employment resulting from the Bankers’ Panic provided many workers and farmers with an unwelcome illustration of their precarious financial position. Americans had long been accustomed to feeling trepidation over the security of their bank deposits. Depositors accordingly developed ingenious strategies for managing the risk inherent to entrusting banks with their savings. Hall of Fame shortstop Honus Wagner came to professional baseball from the coal mines and steel mills of Carnegie, Pennsylvania. It was reported that the frugal ballplayer had “coin in every bank at Carnegie.” “If one bank busts, there’ll be some left,” Wagner explained. Public concern over the safety of bank deposits was so characteristic of the era that the prayer offered by a minister at the opening of a bankers’ convention unconsciously acknowledged this pervasive fear: “Teach them [bankers], Heavenly Father . . . to understand and appreciate the grave responsibility resting upon them . . . before they are made to realize it behind the prison bars, or upon the scaffold.” There was little sympathy for those bankers who failed to heed such admonitions. When a former director of one closed Nevada bank was later gunned down, the case never went to trial. The bank’s officers had plundered the money in its vault, and the district attorney knew that no local jury would convict his killer.^{Footnote 6}

The panic heightened bank depositors’ already acute sense of financial vulnerability. At this propitious moment, William Jennings Bryan inaugurated a campaign to ensure depositors’ financial security. Bryan’s political career was rooted in the concerns of common people. Ordinary citizens consequently felt a unique sense of personal connection to Bryan, unparalleled among the era’s political leaders. He wanted the federal government to guarantee deposits in federally chartered national banks and state governments to guarantee the state banks they chartered. Bryan foresaw guaranty curbing banker autonomy. “I think it will enable us to get some regulation that we need,” he predicted. The “Great Commoner” had assumed the mantle of spokesman for a vocal movement among the nation’s farmers and workers. The New York State Grange, Pennsylvania State Grange, and United Mine Workers of America all resolved in favor of deposit guaranty. The venerable northeastern agricultural paper Farm Journal noted “a very general demand for the government insurance of national bank deposits,” adding that “no good argument has been offered against the proposition.”^{Footnote 7}

Bryan incorporated deposit guaranty into his 1908 campaign for the presidency. The Chicago Record-Herald reported that guaranty “met with instant response in all parts of the land. It impressed millions of men as a sensible and proper and necessary thing to do.” The newly minted state of Oklahoma seized the moment and enacted a guaranty law while memory of the panic still remained just weeks old. The creation of a state guaranty program was a bold move that attracted national attention and interest. Republicans found the potential popular appeal of guaranteed bank deposits troubling. A member of the Illinois Manufacturers Association warned his fellow Republicans that in order to win the presidency in 1908, “we must give them [voters] something good, something as good as Mr. Bryan has given them.” High-ranking party officials were similarly concerned. President Theodore Roosevelt acknowledged that “it [deposit guaranty] has attracted a great deal of attention.”^{Footnote 8}

The American public may have advocated guaranty enthusiastically, but bankers and academics remained rigidly opposed. W. C. Webster, professor of political economy and commerce at the University of Nebraska, warned that “it is greatly to be feared that it [Oklahoma’s guaranty law] will not long retain its solitary position.” J. Laurence Laughlin ruefully acknowledged that there was “soil in which the proposal for a guaranty of bank deposits may take quick root.” Both big-city and small-town bankers opposed the idea. Influential New York banker A. Barton Hepburn condemned guaranty because “it would . . . relieve people from the proper responsibility and the proper prudence in the conduct of their business.” “If a man exercises bad judgment financially, he should be punished financially,” Hepburn insisted. “It is a law of nature.” Andrew J. Frame, the era’s leading spokesman for unit banks, denounced guaranty as “purely theoretical, impractical, revolutionary.” An ideological outlook linked to the autonomy that bankers prized—and that guaranty put at risk—helped fuel these adamant denunciations. The midwestern financial journal Commercial West admitted: “If it could be done with sound results we would still oppose it on the ground of its socialistic tendency.”^{Footnote 9}

Bankers loudly decried guaranty. Speaking at the 1908 American Bankers Association convention, prominent St. Louis banker Festus J. Wade claimed that “it encourages those who have no experience, judgment, wisdom or financial education, to enter the banking field.” “How utterly absurd,” he inveighed, “how silly, this attempt to foist on this nation such a weak, unsound, socialistic doctrine!” The convention was evidently in agreement and proclaimed itself “unalterably opposed to any arbitrary plan looking to the mutual guaranty of deposits.” The bankers assembled a dozen points as justification for their opposition and called guaranty, “misleading,” “unsound,” “subversive,” and “revolutionary.” Allegiance to the banking fraternity trumped political party loyalties. Even in the solidly Democratic South, the prospect of guaranty was too much for most bankers to bear. One survey found only 18 percent of Virginia bank presidents (both national and state banks) supported the Democratic position on the issue with 66 percent opposed, as were 70 percent in Maryland and 60 percent in North Carolina.^{Footnote 10}

State Guaranty Programs

Bryan may have met with defeat nationally at the polls in 1908, but the movement he spoke for found success on the state level. The residents of Kansas, Nebraska, and Texas embraced the idea of guaranteeing deposits in state banks. Bryan helped promote guaranty laws in all three states. Bankers constituted guaranty’s primary opponents in these political contests, although the officers of some small state banks favored the idea because they hoped to improve their competitive position in relation to national banks. Party politics made its presence felt in these debates. At the 1908 Nebraska Republican convention, bankers blocked the incumbent governor’s attempt to have the party endorse guaranty. This move proved politically damaging to the state’s Republicans. The Lincoln News noted that support for guaranty was “a very popular sentiment” in the state. Nebraska’s Democratic Party endorsed guaranty, which a contemporary academic observed was “undoubtedly of great force” in its electoral success that fall. The state had a new Democratic governor following the election.^{Footnote 11}

The electoral outcome was different in Kansas, where Republicans managed to hold the governorship. The Kansas City Star reported that the state’s bankers were making “an exceptionally hard fight” against guaranty. They were also opposing the wishes of the majority. “The people want this law,” observed the outgoing Republican governor. The state GOP accordingly incorporated guaranty into its platform. Following the election, the former president of the state bankers’ association was so outraged over guaranty’s headway that he nearly came to blows with the newly elected Republican governor. Partisan rivalry was not an issue in reliably Democratic Texas, where the state party and leading politicians committed to enacting guaranty. “A law providing for the guaranty of deposits in State banks was demanded and the people mean it,” the governor declared.^{Footnote 12}

Nebraska, Kansas, and Texas all joined Oklahoma by adopting guaranty programs. “Happily,” concluded the Boot and Shoe Workers Union, “the people are coming more and more to the view that when the government charters a bank it should compel the bank to secure the depositors.” The Department of the Treasury was receiving a growing number of letters inquiring about the subject. “I have been specially interested in the law guaranteeing bank deposits,” attested a resident of York, Pennsylvania. Mississippi, North Dakota, South Dakota, and Washington State would all establish guaranty programs by 1917. And the idea received serious consideration in Arizona, Arkansas, Colorado, Florida, Georgia, Iowa, Maryland, Minnesota, Missouri, Montana, Nevada, North Carolina, Tennessee, and Wisconsin.^{Footnote 13}

Deposit guaranty’s following in Wisconsin is revealed by popular interest in Senator Knute Nelson’s (R-Minn.) address on the subject. The University of Wisconsin Extension requested that Nelson provide additional copies after the public demand exceeded their supply. One of Wisconsin’s leading farmer organizations urged, “If the United States government will not guarantee bank deposits, each state should pass a law to do so.” State guaranty legislation was nearly enacted in 1911, which compelled the Wisconsin Bankers Association to campaign aggressively against the idea. Bankers who were members of the Milwaukee Clearing House Association concluded that guaranty “must be resisted . . . at all costs.”^{Footnote 14}

In South Dakota, bankers had managed to obstruct guaranty even after it became law by making the program inoperative. Guaranty was popular with South Dakotans. The state’s Democratic and Republican parties both responded by endorsing the idea in their 1908 platforms. Most of the state’s bankers opposed guaranty, however, and the program that was enacted in 1909 made bank participation voluntary. The law also required that 100 banks (there were 485 in the state) join the program in order for it to take effect. The state’s bankers successfully boycotted the program, so it failed to become operative. Such successes notwithstanding, bankers across the nation were irate over guaranty’s enduring political support. One acknowledged before a convention of fellow bankers that he considered the idea to be “such a heresy I could not touch upon it without dealing in criticism too caustic to have place in these proceedings.”^{Footnote 15}

Deposit guaranty possessed such great popular appeal that it loomed over all of the era’s banking legislation. The proposal repeatedly threatened to be written into the Federal Reserve Act. The bill initially included a guaranty provision because of strong support for the idea within the Democratic Party. A surrogate organization that bankers funded to lobby on their behalf urged that guaranty be removed from the legislation, arguing that “the question of the guaranty of bank deposits has no place in the general problem of banking reform.” The measure’s leading congressional sponsor was Representative Carter Glass (D-Va.), a southern Bourbon who rejected the banking and monetary views of the Bryanite wing of his party. He dutifully consented that “a bitterly controverted point . . . should not be permitted to endanger legislation.” However, supporters in the Senate subsequently managed to insert a guaranty program. Glass attacked the provision in conference. “There are things in this bill,” he said, “which would bring calamity to this country.” The conference committee removed the guaranty feature. The sole financial journal published in the Pacific Northwest observed that bankers were “entitled to felicitate” over its elimination. One Minnesota farmer whose deposits at two separate banks had been “looted by officials” regretted that guaranty “was defeated at every turn by the rascally bankers lobby.”^{Footnote 16}

The post–World War I agricultural depression dealt the fortunes of guaranty a sharp reversal. A wave of bank failures engulfed the heavily agricultural states that had established guaranty programs, which severely strained the resources of their funds for reimbursing depositors. None of the state programs survived. However, demands to make deposits secure continued amid the bank liquidations of the 1920s. Twenty-seven institutions failed in Idaho from 1920 through 1922, many as a result of insider abuse. In 1921, a resident of Idahome provoked by the recent closure of a local bank protested that it was “high time, for some competent representative of ALL the people to see that OUR banking system is a bulwark.” A fellow Idahoan predicted that the politician who succeeded in “safe guarding” national bank depositors would “earn the everlasting gratitude of the American people.” The following year saw the Progressive Party of Idaho challenging the state’s Democrats as chief rival to the dominant Republicans. The third party appealed to voters with a platform featuring state guarantee of bank deposits. Idaho’s Democrats soon adopted a guaranty plank. Guaranteed deposits remained an issue in Congress during the 1920s, and state programs were considered in Arizona, Iowa, Minnesota, Montana, and North Carolina.^{Footnote 17}

The Great Depression Banking Crisis

In the wake of the Great Depression, a series of banking crises struck the nation between 1930 and 1933. Nearly a quarter of all banks (a total of 5,592) failed between the end of 1929 and the middle of 1932. Even among members of the Federal Reserve System, the failure rate was close to one in five. By the fall of 1931, Americans had responded by stashing away approximately $1 billion in sundry caches. “Working people are the greatest sufferers in bank failures,” observed one Chicago tailor, who affirmed that “[a] great deal of this is caused by the dishonesty of bankers.” Sensational cases of banker criminality were abundant, and they further undermined confidence in banks. A Hollywood banker embezzled over $8 million. “There is a lot more wrong with the books than you imagine,” he acknowledged. “I am a dirty crook.” San Quentin Prison shortly had a new inmate, sentenced to serve ten to one hundred years. In Missouri, a banker pointed his revolver at a bank examiner and pulled the trigger. He was a poor shot. The unharmed examiner soon discovered that the bank’s assets were largely spurious. The signatures of people who did not owe the bank a cent had been forged in order to make it appear otherwise. The bank’s president, vice president, and cashier were all sentenced to prison.^{Footnote 18}

The disastrous consequences of bank failures energized the movement for guaranty, prompting public demand for action. “I saved all I could,” recounted a widow in Miami. “I wanted to protect myself in my [old] age.” She had labored for twenty years—“long hours, small salary and hard work.” And all her efforts were for naught. A bank failure had dealt “a terrible blow to me for today I am penniless after such hard struggle for my living. . . . Now my strength is gone and my health is poor—I have no one to depend on.” One Chicagoan described how a bank failure shattered his once-“high-spirited” uncle’s life. He lost his job in December 1929 but “managed to live comfortably without apparent worry” nonetheless because he had “always been thrifty and saved his money.” But his uncle was left without a cent when the bank to which he had entrusted his savings with closed. He died a few years later in 1933, “broke and broken-hearted, without having recovered one penny.” An elderly widow in one midwestern town saw her husband’s life insurance policy payment and the money she had earned over the course of twenty-five years by making rag rugs vanish when the local bank closed. At first the screaming, sobbing woman pounded on the bank’s locked doors. She soon became despondent and withdrew into the solitude of her home. The destitute widow was taken to a psychiatric hospital shortly thereafter.^{Footnote 19}

The overwhelming insecurity that bank depositors felt lent painful urgency to calls for guaranty. “We have many laws making it a crime to rob a bank,” protested a resident of Buffalo, South Dakota, “but we have no laws to protect the depositor from being robbed by the banker.” Organized agriculture and labor provided political support for guaranty programs. The United Mine Workers of America resolved in favor of legislative action to guarantee “all money deposited.” Similarly, the Nebraska Stock Growers Association recommended national guaranty legislation. Numerous bank failures, according to the Chicago Federation of Labor, made clear “the need of a comprehensive and effective legislation providing for a practical bank guarantee system.”^{Footnote 20}

National Guaranty Legislation

“The people of the country are demanding that bank deposits be made safe and secure,” observed Representative Guy E. Campbell (R-Pa.). Congress heard this demand. More than twenty bills to guarantee deposits were introduced during the 72nd Congress from March 1931 to March 1933. Representative Henry B. Steagall (D-Ala.) assumed congressional leadership on the issue. In March 1930, he had remarked: “I think we ought to look forward to the time when the depositors of the Federal national banks can look at their deposit slips as good to the last dollar.” Steagall staunchly backed the idea following his elevation to the chairmanship of the House Committee on Banking and Currency one year later. His efforts were commended. An Oklahoman claimed that “the whole country (of the common folks) will appreciate your effort to protect the depositor.” And a farmer in Iowa effusively praised Steagall for his commitment to the issue: “If you can affect this great improvement in our banking system you will merit and receive the greatest acclaim since George Washington founded the Republic.”^{Footnote 21}

Steagall’s bill easily passed the House by voice vote at a time of deep-seated public apprehension over the banking system. But guaranty had to face the rigid opposition of now-senator Carter Glass in the upper chamber. “These strong banks,” he lectured, “should not be assessed to pay a premium for mismanagement.” Guaranty legislation failed to advance in the Senate. Glass’s banker allies appreciated his stubborn resistance to the idea. The influential regional banking journal Southern Banker called guaranty legislation “the most deadly threat that has yet been aimed at sound banking practices in this country.” And that year’s American Bankers Association convention resolved in opposition “to the passage of any law carrying a guarantee of bank deposits,” disparaging the idea as “unsound and in practice . . . unworkable.”^{Footnote 22}

But as banking conditions continued to deteriorate, popular pressure to establish deposit guaranty mounted. Early on the morning of February 14, 1933, Michigan’s governor declared a bank holiday. Before long, large withdrawals in Maryland prompted its governor to follow suit. The crisis struck the West on March 1, when California announced a bank holiday. Six western states quickly followed the Golden State’s lead. By March 3, bank holidays and restrictions on withdrawals had been implemented in twenty-three states plus the District of Columbia.^{Footnote 23}

President Franklin D. Roosevelt was inaugurated the following day. He took office just as the banking meltdown struck the center of the nation’s financial system. Shortly after 3 o’clock eastern standard time that morning, the governors of both New York and Illinois revealed their intentions to implement state banking holidays. Roosevelt declared a four-day national bank holiday on March 6. Any remaining public confidence in the nation’s banks had simply evaporated. “All the savings of hundreds of thousands have been wiped out,” observed a resident of Vermillion, South Dakota. “Let the other fellow put his money in the bank!” Hoarding was pervasive: the amount of currency in circulation increased by $900 million during the month of February. Congress hastily enacted the Emergency Banking Act to provide a temporary solution to the nation’s banking debacle.^{Footnote 24}

Although the immediate financial crisis had been dealt with, the question of more lasting banking reform remained a pressing one. Guaranty’s moment had arrived at last. The crumbling banking system was unsettling orthodox economic opinion. Senator George W. Norris (R-Neb.) observed that guaranty was “‘percolating’ through many brains which have always bitterly opposed any system of guaranteeing deposits.” Some academics were coming around to the idea. Economists at such institutions as the University of Buffalo, University of Michigan, University of Minnesota, and Yale University publicly advocated guaranteed deposits. Guaranty had become such a pressing consideration that it occupied the center of national political discussion. “Bank deposits must have Uncle Sam’s guarantee,” declared a North Carolina doctor in a letter to the editor. “What is halting guaranteed deposits?” demanded a Philadelphian. “Wherein is the hazard to the Nation?” A Nebraskan informed his senator that “the sentiment of our people is practically one hundred percent for a full guarantee of deposits.”^{Footnote 25}

While public opinion perceived deposit guaranty to be a necessity, the idea remained a significant point of contention between Glass and Steagall. Glass had obstinately denounced guaranty for decades. But he acknowledged which way the political winds blew by toning down his opposition. Glass yielded as little as possible, however. The House draft permitted state banks that were not members of the Federal Reserve System to participate in the program, whereas the Senate bill denied this privilege. And even if Steagall and Glass could reach an agreement, securing executive branch approval for guaranty remained an uncertain proposition. Secretary of the Treasury William H. Woodin opposed the idea. President Roosevelt echoed arguments against guaranty that had been heard so often from bankers in the past. “We do not wish,” he stated, “to make the United States Government liable for the mistakes and errors of individual banks, and put a premium on unsound banking in the future.”^{Footnote 26}

Branch Banking

There was an additional factor that jeopardized the enactment of deposit guaranty. The growing controversy surrounding branch banking had become intertwined with guaranty over the course of the previous decade. The total number of bank branches in the United States almost tripled between 1920 and 1930. Branching supporters heralded the practice as a means to prevent bank failures by encouraging the growth of stronger institutions. The argument was that larger banks were better adapted to withstand financial stress because they commanded greater resources and held more diverse assets. Gaines Thomson Cartinhour, professor of banking and finance at New York University, called “an extensive branch system” the “most logical way to provide a safe depository.” Bankers were sharply divided over the issue of branching. Unit bankers opposed the practice. Pennsylvania banker Charles F. Zimmerman threatened that if the American Bankers Association failed to condemn branching, its opponents would be forced to find a means “to be heard through some other avenue.” Because of the friction within the banking community, the American Bankers Association assumed a neutral position on the issue. At its 1932 convention, the organization resolved that “it should not attempt at this time to formulate a definite attitude aimed to commit all types of bankers on this many-sided question.”^{Footnote 27}

By prompting public concern over banking concentration, branching provided an additional argument in favor of guaranty. Branching opponents claimed guaranty would help preserve the nation’s unit banks. As Representative J. Will Taylor (R-Tenn.) explained: “If deposits in all banks were guaranteed . . . money deposited in small cities, towns, and rural sections would be just as safe as money deposited in the large banks of the metropolitan center.” Conversely, proponents of branching feared that protecting depositors from loss would impede the growth of larger banks. Desire to promote branching animated leading financial figures’ hostility to guaranty. “A general guaranty of bank deposits is the very antithesis of branch banking,” objected J. W. Pole, Comptroller of the Currency during the Hoover administration.^{Footnote 28}

The American public was deeply apprehensive about the centralized economic power fostered by branch banks. A Nebraska rancher believed the practice “would mean a better system for the big money interests to inflate or deflate money and cause good times and depression which are generally taken advantage of by the big moneyed interests.” Organized agriculture and labor voiced concerns about branching’s monopolistic consequences. Large financial institutions were also deemed a threat to democratic rule. “Chain banking is the foundation stone upon which our financial barons hope to erect a structure which will lead to imperial power,” charged one union journal. Recent developments reinforced such sentiments. Banking was a highly concentrated sector of the economy. And banking concentration was increasing. Total deposits held by the nation’s one hundred largest banks surged by more than 46 percent from 1924 to 1930. By the latter date a mere one percent of the nation’s banks held over 46 percent of total banking resources, with just twenty-four New York banks controlling 15 percent of all resources.^{Footnote 29}

Critics of banking concentration rejected the argument that large banks would deliver greater financial security. The Progressive, which was founded by Robert M. La Follette Sr., stated: “We do not believe that simply because a bank is a BIG bank that it is necessarily a SOUND bank.” The recent collapse of extensive bank networks in Detroit and Nevada lent credence to this viewpoint. “Just think,” Senator Thomas J. Walsh (D-Mont.) apprehensively imagined, “of how our financial structure would be shaken to its very foundation should disaster overtake . . . the chain of banks comprising the Bank of Italy system.” (Bank of Italy recently had been renamed Bank of America.) The federal government prevented such a catastrophe from occurring: the Reconstruction Finance Corporation extended over $90 million in loans to Bank of America (and the affiliated Bankitaly Mortgage Company), and A. P. Giannini’s bank was afforded special treatment during the national bank holiday. Its one million depositors meant the institution was considered what we now call “too big to fail.” The government support granted to giant banks reveals that as a whole they were generally no sounder than the nation’s small unit banks. In total, the agency’s lending to large banks was in proportion to their overall share of the banking system. Of the $950 million the Reconstruction Finance Corporation loaned to banks and trust companies in 1932, a mere twenty-six institutions received $330 million.^{Footnote 30}

Not even the rise of branch banking could persuade the bulk of unit bankers to endorse guaranty. The Independent Bankers Association castigated branching as “the opening wedge by which every independent unit bank will be put out of business.” Nonetheless, it protested guaranty’s inclusion in the banking bill. The banking fraternity simply refused to countenance guaranty. The New York financial journal Trust Companies saw no need even to engage with the issue, dismissively observing that “objections to state or federal guarantee of deposits are too familiar to require repetition.” As one North Carolina banker categorically declared: “I am entirely opposed to any guarantee of bank deposits on any basis whatsoever.” Guaranty was so repellent to bankers that Francis H. Sisson, president of the American Bankers Association, reiterated that the organization was “firmly on record as opposed in principle to any law carrying a guaranty of deposits.” And he added, “We feel that this [guaranty] is the most serious menace to the banking structure that has been proposed in our lifetime.” Demands for banker autonomy had been discredited, however, and banking interests were in no position to prevent the inclusion of guaranty in the reform legislation that passed Congress at the end of May 1933.^{Footnote 31}

The Federal Deposit Insurance Corporation

The House and Senate banking bills were sent to a conference committee for reconciliation. The outstanding issues were guaranty and branching. The House won an important concession: state banks were granted the opportunity to participate in the Temporary Federal Deposit Insurance Fund (the interim precursor of the Federal Deposit Insurance Corporation) when it commenced operation on January 1, 1934. But state banks wishing to continue to benefit from this government program would have to join the Federal Reserve System by July 1, 1936.

In order to secure the guaranty provision, House conferees felt compelled to accede to the Senate conferees on branching. Glass was adamant that branch banks were a “real necessity” for strengthening the banking system. Existing federal banking law sought to control branching. The McFadden Act of 1927 allowed state banks joining the national banking system to retain any branches they already operated while prohibiting national banks from opening new branches outside the municipality where their home office was located. The legislation that emerged from conference abdicated federal responsibility for branching policy. National banks were free to establish branches to the extent permitted state banks under state law. “After a great deal of deliberation,” Representative T. Alan Goldsborough (D-Md.) recounted, “We were forced to the conclusion that we should yield, because we could not have gotten any sort of legislation if we had not yielded.” “A majority of the Senate conferees did not want any bank-deposit insurance bill at all,” he explained. But Glass had resigned himself to the inevitability of guaranty, concluding that “it will be better to deal with the problem in a cautious and conservative way than to have ourselves run over in a stampede.” The branching feature, therefore, was a concession Glass managed to extract in return for acquiescing to guaranty. Senator Frederic C. Walcott (R-Conn.) enthused that “there are in the bill provisions which will enable a branch-banking system to grow as rapidly as the state laws will allow it to grow.”^{Footnote 32}

The administration’s position on the banking bill had remained an unsettled question throughout the spring. Senator Josiah William Bailey (D-N.C.) reported: “We hear one day that the President is for it, and the next day that he is not.” Even after the House and Senate had passed banking legislation incorporating guaranty, Roosevelt remained resistant to the idea. The American Bankers Association instructed its members to contact the White House and urge a presidential veto. “The American Bankers Association fights to the last ditch deposit guarantee provisions . . . as unsound, unscientific, unjust and dangerous,” declared Francis H. Sisson. “Overwhelming opinion of experienced bankers is emphatically opposed to deposit guarantee.”^{Footnote 33}

It soon became apparent to Roosevelt, however, as it had to Glass, that he would have to yield to public pressure. Comptroller of the Currency J. F. T. O’Connor stressed to the president that the political reality was that “people were impatient and demanded security on deposits.” Roosevelt followed the politically expedient course of action. He put aside his personal reservations about guaranty and signed the bill into law on June 16. The nation’s bankers remained bitterly unreconciled to the measure’s enactment. “The vast majority of bankers,” Southern Banker reported, “oppose the insurance or guaranty of deposits, sincerely and on principle.” Bankers reiterated the same points in opposition to the program that they had made for decades. The American Bankers Association claimed that “the guaranty of bank deposits violates every conception of a capitalistic society, and . . . it will not work.” Many bankers wanted to continue to fight the plan. “Of course,” stated North Pacific Banker, “the American Bankers Association should do all in its power to have this law changed.” The president of the New York State Bankers Association declared before the annual American Bankers Association’s convention that guaranty “should be eliminated” from the Banking Act of 1933. The convention contacted the White House to recommend postponing implementation of the program.^{Footnote 34}

Banker intransigence proved futile, however. After decades of agitation, popular pressure had resulted in enactment of deposit guaranty despite consistent opposition from financial interests, academic opinion, and leading politicians. As Representative Steagall observed: “The insurance of bank deposits is written today as a law of the land because the voice of the long suffering and long abused people arose to the point where it could not longer be ignored.” The Temporary Federal Deposit Insurance Fund took effect as planned on January 1, 1934. The American Federation of Labor declared victory and stated that its “efforts will now be mobilized to retain the measure as a necessary law.” The National Grange made clear its belief in the necessity of guaranty by resolving: “We especially approve of that feature of the Banking Act of 1933 which provides for the guarantee of deposits and we are opposed to the repeal of the bank guarantee feature.” A few months later, North Pacific Banker observed that bankers had finally begun to accept the inevitable. “Most bankers, it is sure to say, are not sold on deposit insurance, but they are accepting it in good grace, for they know they are going to be highly unpopular, if they give their unbiased opinion of it. The man in the street is for it.”^{Footnote 35}

The Extension of Branch Banking

Not all bankers had been preoccupied with guaranty. One notable figure was absorbed with the other side of the bargain struck by the conference committee. No one was better positioned to profit from more permissive branching laws than the leading banker of the West. A. P. Giannini had pioneered branching in California by circumventing state law in order to purchase and incorporate smaller banks. He excitedly lauded the Banking Act of 1933’s branching provision. Giannini claimed that the new law “gives governmental endorsement to branch banking. . . . It is the forerunner of legislation which eventually will extend branch banking to a nationwide basis.” The spread of branching that Giannini envisioned was already under way. Trust Companies reported: “Extension of branch banking . . . has been marked since the passage of the federal bank act.” As the summer of 1933 came to a close, five states already had moved to permit statewide branching. By 1936, only nine states prohibited branch banks. Giannini’s relentless drive to expand had been unleashed. “If you let A. P. on the loose, he’d have a thousand banks under his belt before you could say ‘stop,’” observed one Roosevelt administration official. “That would kill the little independent banks.” Ninety-nine new Bank of America branch offices received official sanction by the fall of 1936.^{Footnote 36}

Developments in Arizona realized the vision of branching proponents. Arizona was a branching state before the Banking Act of 1933, and its two largest banks already held a sizable 32 percent of the state’s total deposits in 1932. Banking concentration increased following enactment of the new law. The state’s dominant bank converted to a federal charter. Valley National Bank’s share of Arizona deposits tripled from 15 percent to 45 percent between 1932 and 1938. The number of banks operating in the state halved from twenty-four to twelve over the same time period, while the number of branch offices increased from fifteen to twenty-six. Giannini’s Transamerica Corporation furthered his abiding preoccupation with expansion by entering the state in 1937. The holding company acquired two banks (one of which also had an affiliate). Transamerica already had purchased banks in Nevada, Oregon, and Washington State. “I would make branch banking nation-wide and world-wide,” Giannini declared. Transamerica controlled 24 percent of Arizona’s deposits by 1940. In 1957, there were only six banks operating in Arizona, and four of them held over 97 percent of the state’s bank deposits.^{Footnote 37}

The Federal Deposit Insurance Corporation is the product of everyday Americans’ demand that government secure their bank deposits. Ordinary citizens overcame vested financial interests and the preponderance of the national political establishment in their pursuit of guaranty. But leading opponents of guaranteed deposits managed to extract something they wanted in return: branch banking. Americans no longer dread the prospect of their life savings vanishing in a bank failure, but they are increasingly aware that a handful of financial institutions are “too big to fail.” The Banking Act of 1933 not only secured bank deposits, by sanctioning branching it also encouraged banking concentration in the future. And the elimination in 1999 of the act’s prohibition against banks of deposit participating in other realms of the financial sector elevated systemic economic risk. In 2010, the six largest banking corporations in the nation held assets equivalent to 63 percent of the Gross Domestic Product, as opposed to only 17 percent in 1995. The likelihood of banks plunging Americans into financial insecurity has returned with a vengeance.^{Footnote 38}